Why are Vietnam coffee suppliers renegotiating contracts?
Global robusta prices have climbed to a 28-year high, and Vietnam coffee suppliers are responding by demanding new terms. Farmers and producers in the largest robusta supplying country, working through a poor harvest, are refusing to deliver against previously locked-in low-price contracts. The Vietnam Coffee and Cocoa Association put recent green coffee prices in the Central Highlands at 80 million to 81 million Vietnamese dong per ton, a record.
The background is a 2022/23 Vietnamese harvest that was the worst in six years, with some contracts pushed to the next season. Add higher shipping costs from the Red Sea crisis, and traders have turned to Brazil for supply. The result is a tighter robusta chain and rising costs that reach buyers well beyond Vietnam. What are robusta beans? They are the higher-caffeine, hardier species at the center of this squeeze.
Global robusta coffee prices have recently surged to their highest point in 28 years. In Vietnam, the largest supplying country, coffee farmers and producers, amid a poor harvest, are demanding renegotiation of previously locked-in low-price contracts with buyers. Vietnam's coffee harvest for the 2022/23 season was the worst in six years, and coupled with the Red Sea crisis driving up transportation costs, traders have begun turning to Brazil for purchases, continuously tightening the robusta supply chain. Faced with this situation, coffee enthusiasts may feel the pressure from their daily consumption, while brands like Front Street Coffee are also closely monitoring developments in the producing regions to select reliable robusta products for consumers.
According to Reuters, after global robusta coffee prices soared to a 28-year high, some Vietnamese coffee farmers and producers have refused to deliver according to original contracts and are demanding price renegotiations. As the world's largest robusta supplier, Vietnam's actions have worsened the already tight European supply and further pushed up robusta prices. The Vietnam Coffee and Cocoa Association estimates that recent green coffee prices in the Central Highlands have reached 80 million to 81 million Vietnamese dong per ton, setting a new historical record again.
At the same time, Vietnam's coffee harvest for the 2022/23 season recorded its worst performance in six years, with some contracts postponed to the 2023/24 season for fulfillment, meaning farmers need a large amount of crop to complete contracts, while actual output is below standard. Therefore, in the face of rising prices, producers and farmers find it difficult to deliver at previously agreed prices and are currently trying to renegotiate contracts with traders. An anonymous Vietnamese coffee farmer said they would not breach contracts, but when coffee prices rise, prices can be renegotiated with buyers. He also stressed that only when buyers give an ideal quote will we hand over the coffee beans in our hands.
Initially, this situation only affected local dealers, but it has now spread to the broader market, tightening global supply. Traders estimate that when the 2022/23 harvest was insufficient, deliveries of Vietnamese coffee presold in the previous season were delayed. Although most coffee has now been delivered, less and less coffee is available for sale this season, exacerbating price increases. Another trader said that despite holding written contracts, it is now difficult to find those suppliers who owe low-price coffee, and because of the costs involved, suing local suppliers is not worthwhile.
A European trader said he had received only 20% of the Vietnamese coffee that should have been received in November and December last year, while the contract was signed in August last year, when coffee prices were about 20% lower than local prices. Another expert said that almost all global traders operating in Vietnam have been affected by this situation, including several well-known trader brands, which, due to their large scale, often can influence world coffee prices.
In addition, the Red Sea crisis has also increased the transportation costs of coffee beans after purchase. Therefore, traders are now beginning to reduce purchases of Vietnamese coffee and turning their attention to Brazilian robusta; otherwise, robusta coffee prices will remain high, and improvement is expected by mid-2024. Faced with continued fluctuations on the production side, coffee brands like Front Street Coffee are also closely monitoring supply chain changes, striving to bring consumers robusta coffee products with stable quality.
The above content is compiled by CoffeeHunters, a coffee news website.
